Marc Lasry Sees Opportunities in Europe: Interview

Yesterday, Avenue Capital's Marc Lasry appeared on CNBC to talk about markets and his latest positioning.

He noted they're still long J.C. Penney bonds and think things will work out as it's essentially a turnaround bet.  We've previously posted Lasry's presentation on JCP bonds.

They see opportunities in Europe due to the deleveraging and are also looking to do direct lending to take advantage.  He said you want to focus on equities in Southern Europe but bonds in Northern Europe.

Embedded below is the video of Marc Lasry's interview:



If you missed it, we also posted up Jamie Dinan's interview as well as Lee Cooperman's interview from the same segment.

Howard Marks' Latest Memo: High Yield Bonds Today

Oaktree Capital's Chairman Howard Marks is out with his latest letter entitled "High Yield Bonds Today."  As implied by the title, it deals with the distressed manager's take on an asset class frequently talked about these days:

He notes,

"While we believe spreads are attractive given the risks we see in our portfolios, it is true that there is little room for price upside, making the reward for risk taking limited.  In this type of environment, superior returns are more likely to be earned through minimizing mistakes than through stretching for yield.  Rather than behaving aggressively, the search for return should involve risk control, caution, discipline and selectivity."

Marks concludes that investors shouldn't sell their bonds and wait for a better time to invest, arguing that market timing is near impossibility (especially in less liquid markets like high yield).

Embedded below is Howard Marks' entire memo, High Yield Bonds Today:




You can download a .pdf copy here.

For more from this manager, see Marks' other recent commentary on fixed income returns not being worth the risk.

Avenue Capital's Marc Lasry: Huge Amount of Distressed Opportunities in Europe

Marc Lasry, co-founder of Avenue Capital appeared today on Bloomberg TV where he said he thinks there's a huge amount of distressed debt investing opportunities in Europe.  He also argued that Europe would not blow up.

His firm manages just under $13 billion and this is the second time we've seen him appear to talk about the opportunities in distressed debt.


Here are some select excerpts from his interview we found intriguing:

On investing in Europe:  "The great thing about Europe today is you've got a huge amount of supply and very little demand. So you're not really bumping into everybody. I think that’ll change over time."

Which is the better opportunity: US or Europe?  "I think in Europe today, you're getting overpaid for the risk. For us, we can buy senior debt in Europe for around 50 cents, 60 cents and here in the U.S. you're paying 70 cents or 80 cents for it. The question is, where do you want to be investing? A lot of it goes to, if you look at investing today, the risk-free rate is 20 basis points, so where are you getting paid to take the risk? For us to make 15% to 20%, we think we can do it in Europe a lot easier than here."

How Avenue's been investing:  "We have been investing the capital about 5% a month. The reason for that if we think over the next year or year and a half, there's a huge amount of opportunities and the question is, is the better time to invest three months ago or three months from now? Our view is to invest over time. And we think we'll just average in the prices."

Is Lasry worried about Europe short-term? "It matters but our long-term view is over the course of the next two or three years, everything is going to work itself out, and whether it's George Soros or it's somebody else, which you constantly keep hearing every week and every month that Europe has problems. We all know that. I think it'll work out. If you believe that and you invest, you'll do well."


Embedded below is Marc Lasry's full interview with Bloomberg TV:




For more on this investor, Marc Lasry is profiled/interviewed in the new book The Alpha Masters which is definitely worth reading.

Jonathan Kolatch: Long Argentina Sovereign Debt (Ira Sohn Presentation)

We're posting up notes from the Ira Sohn Conference.  Redwood Capital's Jonathan Kolatch gave a presentation on going long Argentina sovereign debt.  He manages $4 billion, mainly distressed and high yield.

Argentina Sovereign Debt: Debt/GDP 44.5%, half or less than most in Europe. Fiscal balance, growing GDP, 8.9% in 2011, 4.2% in 2012. Similar to Brazil, Mexico, Colombia however, yet trades 13% yields vs 4.2% average for others. Defaulted in 2001, debt ratio improving ever since as GDP grows. Only paying 0.8% of annual GDP in interest to non-governmental holders of Argentine debt, so they have little to gain by defaulting.

Says the YPF nationalization doesn't mean they'll default on the debt. But they are still technically in default. If traded in line with peers: 36.5% IRR, get 13% yield while you wait. Downside: recovery around 20% at worse- Greece, Russia, others 40-50%. Last Argentine default was 35%. No catalysts, cheap, 13.7% yield while you wait.


P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.

Marc Lasry on Opportunities in Distressed Debt

Avenue Capital's chairman and founder Marc Lasry was on Bloomberg TV yesterday giving an interview where he talked about investing in European debt.  He also said investors should focus on the the world's largest economy, the US, rather than China.  He's been focused on homebuilders and on the energy side, mainly focusing on senior secured.

He talked about raising $3 billion for a special situations fund to invest in European debt.  He argues that you need a lockup with that money because these situations are going to take years to play out.  Here's the video:



The hedge fund manager also touched on his distressed focus, noting that while others might think he's taking on a lot of risk, he doesn't believe so since he often deals with senior secured debt.

He mentioned how he learned a lot from David Bonderman.  One of the best lessons he learned is: "there's a difference between what the perception is and what the actuality is."

He also talked about his love for poker as he regularly hosts games.  Lasry says there's many similarities between investing and poker as the card game is very mathematical.  In the past, we've highlighted the high amount of hedge fund managers that play poker. 

Embedded below is the other video of Lasry's interview:



For more on his investment niche, head to comments from a hedge fund distressed panel.

Distressed Investing Panel: Dan Loeb & Daniel Krueger (CIMA Conference)

Continuing the series of notes from the CIMA conference (Columbia Investment Management Association), we turn to the distressed investing panel with some featured comments from Third Point's Dan Loeb and Owl Creek Asset Management's Daniel Krueger as well as some answers from Bruce Berkowitz (Fairholme Capital).

Distressed Investing Panel

Dan Loeb's Comments: Distressed investing applies to a process in securities that are not performing, it starts with a valuation of the enterprise- they buy anywhere in the capital structure. When they find one they like, they “jump in with both feet.”

In Q4 last year, it seemed that the concerns about the Europe crisis were well discounted in the market, and the US data was getting better. As January progressed, tail risk appeared off the table, and valuations of stocks were cheap. Administration realized that either beating up on the banks, or allowing them to grow, it was better to let them grow.

He got much more bullish in Jan, especially financials (Third Point has increased net long exposure). Bought Unicredito rights. Tech is ridiculously cheap- owns AAPL, GOOG, CSCO. “I’ve made more money going with the along with the crowd than against it.” Still maintain shorts, exposure went from 20% to 40% net long. Still long-tail hedges in case they’re wrong. Portuguese debt looks cheap. You can see Loeb's rationale for owning UniCredit and more in Third Point's investor letter.


Daniel Krueger's Comments: Besides just valuation, they look at each situation totally differently. Most situations require different skills than just valuation.

In distressed, you don’t need to know what is going to happen, for example, no one would have predicted with certainty that MF global was going to happen. You wait for situations to emerge. WAMU is an example- anyway that was an expert on WAMU the day before it was seized by the FDIC knew nothing now, it was all changed.

Distressed in Europe? 3% default rate vs. 2% in US. US high yield market current prices implies 7% default rate in the US over the next 5 years. (This seems ridiculously high). Europe has different rules than the US Chapter 11 rules. Look at process, not just outcome. Distressed is very binary. Your investment in Fannie for example at 5 cents on the dollar could go to zero. Assuming that is a bad decision may be wrong, if your process is right. The upside to these deals could be 20x, so don’t just look at outcome to decide if it was right or not, win or lose.

Idea: Seat Pagine Gialle SpA in Italy, yellow pages company. Been crushed all year, easy to hate yellow pages business, but has 40% EBITDA margins, no CAPEX, true monopoly, cheap price. Enough FCF over 4 years to repay the entire capital structure.


Bruce Berkowitz's Comments: “Shows you what kind of year I had last year, I didn’t think I WAS a distressed investor!” We often underestimate how important the price you pay for an investment; it may be 50-75% of the investment process, what price you pay for it.


Q&A Session:

1. Chrysler situation does not affect how they invest today.

2. How has Loeb’s process evolved? Started out in a single office, by himself, trying to raise money early, picked stocks during the day, and did bookkeeping at night. Now he has a 60 person staff, he has had to create an organization. Totally transparent, totally collaborative, defined investment framework. Research process defined. Learning turns on his team. He likes “high performance activity” like skiing, surfing, ran a triathlon. Something youthful about it. Had former CIA agents teach them deception detection. Always learning. It will naturally find itself into your investment process.

3. Tail hedges? About 50-100 bp of overall fund, that would have 10-20-30x payoffs if they materialize. Out of money calls on oil, for example, used to hedge against war in Iraq. Australian dollar put options, hedge against things slowing down in China.

4. When do they cut their losses? Berkowitz says if the facts tell you you’re right but the price tells you you’re wrong, you give yourself a lot of time. He basically never uses stops, he goes for years. Ask yourself “what am I missing?” Krueger says same thing – has never cut losses. Loeb: we may realize management is not as good as we thought, in case of YHOO, we try to change their behavior, or we just move on. Earnings misses- when stock falls, is the value impaired or our analysis was wrong. He sells at a loss often.


For the rest of the notes from the CIMA Conference, head to these posts:

- Dan Loeb: Lessons He's Learned as an Investor

- David Einhorn Question & Answer Session

- Bruce Berkowitz's Basic Checklist for Investing & What He's Learned Now

- Long/Short Equity Investing Panel (Whitney Tilson)

- Bill Miller on What Stocks He Likes Now

- Michael Karsch on Risk Management

- Bruce Greenwald's Market Comments